Comcast Cable Franchise Renewal Final Project Report

Comcast Cable Franchise Renewal Final Project Report September 1, 2011

Prepared by: Marty Mulholland, Director of I.T. Services Department

Contents

I. Overview ....................................................................................................................................... 2 II. Project Timeline ............................................................................................................................ 4 III. Proposed Franchise - Financial Provisions and Impacts ............................................................... 5

IV. Proposed Franchise - Public, Education, and Government Access Television Provisions ........... 9

V. Proposed Franchise – Customer Service and Other Key Franchise Provisions .......................... 11 VI. Future City Council Actions ....................................................................................................... 13 VII. Conclusion ................................................................................................................................... 14

City of Bellingham

Comcast Cable Franchise Renewal Final Report – September 2011 2

I. Overview

City staff have completed negotiations with Comcast and now have a proposed cable franchise

agreement for Bellingham City Council and community review and approval. Comcast currently

provides cable service to approximately 26,500 subscribers within the City of Bellingham. The

complete proposed agreement and project background documents are available at

www.cob.org/comcast.

The proposed 10-year agreement will replace the current 15-year agreement that was finalized in

1996.

The new agreement meets many of the policy goals and direction given by the City Council, and

also maintains or adjusts services consistent with requests from key stakeholders and the general

public. Not all goals were met, particularly related to Comcast telephone systems and billing

statements, however, other administrative improvements were made, a limited discount program

was maintained, and a program providing cable services to schools and some municipal buildings

was maintained. Opportunities for public, educational and government access television were

increased. The overall agreement was reorganized and now includes a table of contents and

appropriate reference exhibits. Key provisions of interest to subscribers were included in

appendices. Enforcement procedures were updated. Checklists of notices and reporting

requirements were added to facilitate administrative requirements for both the City and Comcast.

As has been discussed in the past, the City is not able to impose rate regulation, which was a top

interest item expressed from the general public. Rates for cable services are largely deregulated by

federal law. Cable operators also have First Amendment protections so the City has very limited

authority to regulate the type of cable channels carried or the content of cable television

programming Comcast makes available in Bellingham, and this too was an interest item expressed

from the general public. Negotiations were therefore limited to other aspects of Comcast’s cable

services in Bellingham including fees, conditions of service, reporting and payment

responsibilities, continuation of special programs, options to add public education and government

access channels, etc.

The remainder of this report section provides a project summary, and the remainder of this report

provide more detailed information about the proposed franchise agreement.

2010 Project Efforts: Physical Plant Inspection

In 2010 two key project efforts were conducted. The Kramer.Firm was hired to inspect the

Comcast cable plant located in City of Bellingham City limits, to determine compliance with

electrical safety codes. An inspection of this type had not been conducted in Bellingham in the

past. That inspection was conducted in May 2010, and a report was received and posted to the

City’s web site in August 2010.

Findings were generally positive. Kramer.Firm described the cable system was in Above Average

condition related to compliance with National Electrical Code and National Electrical Safety Code

standards. A number of specific installation concerns were enumerated.

http://www.cob.org/comcast

City of Bellingham


Staff met with Comcast representatives to review and discuss a proposed corrective action plan in

September 2010. Many items identified had already been corrected, and Comcast described a plan

to address or schedule the majority of the remaining issues. Comcast also described the interaction

between utilities needed to achieve some of the repairs.

2010 Project Efforts: Desk audit of franchise fees

Also in 2010 Moss & Barnett conducted a desk audit of Comcast franchise fees. The objective of

the audit was to determine whether franchise fees being paid to the City were consistent with

franchise requirements. A more comprehensive audit had been done in 2002. The main purpose of

this audit was to review franchise fee revenues and payments made to the City in years 2008 and

2009.

Audit findings were generally positive in that revenue was consistent with franchise requirements

and most financial trends analyzed were consistent with industry trends and expectations. Some

guidance was provided for the City regarding future monitoring of revenue trends.

The City and Moss & Barnett worked with Comcast to pursue records related to a one-time

payment of $22,841.39 that had been provided to the City in August 2010. Upon further

investigation, it turned out that this was a delayed payment for an area that was annexed by the

City, and per the franchise agreement, Comcast owed the City interest on that payment. Comcast

paid the City an additional $2,733.11 in interest payments for franchise fees and utility tax.

The audit report was accepted by the City in December 2010 and provided recommendations that

staff incorporated into the franchise related to record-keeping and payments following an

annexation.

2010 Public Needs Assessment

Feedback from the general public and key stakeholders was gathered and analyzed beginning in

May 2010.

In May 2010 the City conducted outreach including a web survey, hosting of public meetings, and

meetings with key stakeholder groups. Local media coverage was strong, which may have

contributed to the significant amount of community input received. That input, along with analysis

by staff of challenges in administering the current franchise, and analysis of other franchise

agreements, served as input for a franchise renewal community needs report which was published

in August 2010. The report is available in its entirety at www.cob.org/comcast.

Needs and recommendations from the community report served to inform the City Council and

negotiating team in identifying goals for the new franchise.

http://www.cob.org/comcast

City of Bellingham


Franchise Renewal

The process of negotiating was a lengthy effort that took nearly one year. The existing franchise

agreement expired in February of this year but was informally extended as negotiations with

Comcast continued. City negotiation team members invested significant negotiations time in

preserving elements of the current franchise agreement.

During the negotiations over 20 versions of the franchise document were created, and in some

cases elements that were agreed to by both parties had to be re-reviewed and adjusted. Both the

City and Comcast had multiple internal parties to work with to gain approval on some elements of

the agreement, and gaining these approvals caused the majority of the delays. Most recently (and

in consultation with City leaders), City staff chose to delay moving the agreement forward in an

effort to improve or alter specific provisions that were altered in a final review process by

Comcast.

Project Expenses

The City retained the law firm of Moss & Barnett as the principle consulting firm for this project.

Project consultant costs through July 2011 were at $92,255, and include expenses associated with

legal and negotiations assistance, the franchise fee desk audit, and the physical plant inspection.

Note that these expenses can be billed back to and recovered from Comcast, and thus far over

$73,000 in project expenses have been recovered from Comcast.

Next Steps for Franchise Renewal

Next steps to complete the Comcast franchise renewal include legal notifications via the local

newspaper of record, a public presentation at a City Council meeting, a public hearing, and then

consideration by City Council. These project phases are scheduled to take place during September

and October 2011..

The remaining sections of this report provide an overall project timeline review, and describe key

elements of the proposed franchise.

II. Project Timeline

Research for the Comcast cable renewal project began in late 2009, with funding appropriated in

2010. There were several components to this project completed in 2010, but actual negotiations

began in September 2010 and took almost a full year to complete. Key dates for the project are

shown grouped by various project activities.

Consultant Activity and Reports:

January 2010 – City issued Request for Proposals for franchise consulting assistance

April 2010 – Entered into contract with Moss & Barnett, represented by Mr. Brian Grogan, for

franchise consulting assistance. Chose Kramer.Firm Inc. to conduct physical plant inspection.

May 2010 – City receives Physical Plant Inspection report from Kramer.Firm. Report finds

Comcast infrastructure to be in above average condition.

City of Bellingham


May 2010 – Moss & Barnett initiated desk audit review of Comcast Franchise Fees

December 2010 – City receives Moss & Barnett desk audit report of Comcast Franchise Fees

Public Input

May 2010 – Public project briefing for City Council

May 2010 – Public outreach and communications – Community input meetings held, web-

based survey released, held meetings with stakeholder groups to gather specific input

August 2010 – City publishes Needs Assessment Report - This lengthy report (176 pages in

length) provided pages long, provides analysis of public input and identifies changes to be

made to franchise in consideration of public, stakeholder, and staff input.

August 2010 – City staff present public report to City Council and provide report online on

City Web site

Negotiations and key follow-up meetings

May 2010-present – Began meeting with and/or communicating with Council Liaisons Stan

Snapp and Michael Lilliquist to provide briefings and receive project input and guidance. Also

received negotiations direction from City Council as needed.

July 2010 – Began drafting franchise agreement based on public input and Council direction

September 2010 – Follow-up meeting with City and Comcast regarding physical plant

inspection and next steps.

September 2010 – Began negotiations with Comcast, including exchange of proposed

franchise documents

October 2010 – August 2011 – Exchanged and/or updated over 20 versions of franchise draft

documents. Experienced significant delays at times due to authorizations needed by the various

parties, or in order to respond to unanticipated document revisions.

August 18, 2011 – City staff receives franchise from Comcast that is acceptable to Comcast and

is consistent with policy direction provided by City Council

III. Proposed Franchise - Financial Provisions and Impacts

Financial Provisions in proposed Franchise:

There are two types of fees that are identified in the proposed franchise and that can be passed on

to cable subscribers:

Franchise fees, and

PEG fees (to support Public Education and Government Access) equipment.

The franchise agreement allows Comcast to install cable and facilities throughout the City’s rights-

of-way in exchange for the payment of certain rental fees – known as franchise fees – and other

benefits for Bellingham and its residents.

The franchise agreement defines Comcast’s gross revenue for the purpose of calculating the

franchise fees owed to the City. The franchise fee rate is the percentage of those revenues that

City of Bellingham


Comcast pays to the City for use of its right-of-way. The current rate is 4.25%. Most other cities

in Washington use a rate of 5%, and that is the rate in the proposed franchise agreement.

The Franchise fees collected are not restricted in how they are used. Currently franchise fees

distributed to the City are deposited in two funds: a) the City’s general government fund and b) in

an operating budget for the City’s government and education access channel, BTV10.

PEG fees must only be used for capital expenses (typically equipment) and may not be used for

operational support (such as staff).

Continuation of a discount program was supported by the community, with 77% of Bellingham

web survey respondents indicating that special discounts should continue to be made available to

low income senior citizens or to low income people with disabilities.

The table below provides information about financial provisions of the current and proposed

franchise agreements.

Provision Current Franchise Proposed new franchise Franchise Fee

Rate –

Comcast’s

payment to the

City for

installing cable

and facilities in

rights-of-way

4.25%

Distribution of revenues –

ensure 1.25% goes to BTV10

operations

5%

Distribution of revenues: During term of the

Franchise, the City shall place no less than

1.25% of Franchise fees received in a fund to

support BTV10 operations

PEG

Fees/Capital

Grants

PEG Fees available as part of

a Capital grant – was

available in the current

franchise but was not

implemented and therefore

not collected from subscribers

Upon the Effective Date of this Franchise,

Comcast shall collect on behalf of City a per

Subscriber fee of fifty cents ($.50) per month

(“PEG Fee”).

The City may, at any time over the term of this

Franchise, provide Comcast ninety (90) days

advance written notice and increase or decrease

the PEG Fee as determined in City’s sole

discretion. In no event may any PEG Fee

exceed fifty cents ($.50)/Subscriber/month.

Any PEG fees collected and shown on

Subscriber bills shall appear in a single line on

the bill.

Should the City need to construct fiber return

lines for carriage of new PEG channels, PEG

Fees collected can be used for construction

expenses. Comcast will collaborate with City

City of Bellingham


Provision Current Franchise Proposed new franchise on cost-sharing.

Use of PEG fees must be sent to Comcast

annually so that Comcast will affirm PEG fee

use appropriate with capital requirements.

Discount

Program for

limited cable

plan (most

basic plan) for

qualifying

customers

Discount program with

qualification process

administered by City provides

discount of 30% on the

limited cable package for

some customers.

Discount program continues, to be administered

by Comcast.

The program will continue throughout the term

of the new franchise for qualified customers.

Newly qualified customers must be age 65 and

older. The current City standard is age 62 and

older. Current customers will be grandfathered

in. Comcast will provide count of participating

customers to City upon City request.

Comparison of Franchise Fees throughout Washington State:

Below is table of showing Cable Franchise fees and PEG fees for other Washington state

jurisdictions.

Franchise Fees (2008 AWC Tax and User Fee Survey), updated in May 2010 by City of Bellingham staff

City Cable PEG Fees Auburn 5% $0.35/subscriber/month

Bellevue 5% $.25/subscriber/month

Bellingham 4.25%

Everett 5% $1.00/subscriber/month

Kent 5% No PEG fees, currently in negotiations

Kirkland 5% $.25 per quarter on each subscriber

Olympia 5% $0.30 per subscriber per month for access capital costs

Redmond 5% $1/month/subscriber PEG fee

Renton 5% $0.17 per subscriber/month

Seattle 4.20% $.12/subscriber/month PEG fees

Note that Seattle has a 10% utility tax for Cable, but Telecomm. utility

tax is 6%

Spokane 5% $0.50/subscriber/month capital contribution

Spokane Valley

5% $0.35/subscriber/month pd quarterly as capital contribution

Tacoma 5% 1% of gross revenue payable with monthly Franchise Fees, in special revenue fund

Yakima 5% Equipment & facilities grant of $118,320 paid every 3 years over the course of the 20 year franchise agreement signed in 1994

City of Bellingham


Financial Impacts to Subscribers:

The table below shows impact of fee changes to subscribers based on three typical cable

subscription plans.

Franchise fees are assessed based on the total cable portion of the subscriber’s bill, which could

include the costs of the cable plan, plus extra programming packages, extra equipment, etc.

PEG fees would be assessed monthly for cable subscribers.

Typical customer bills - impact of change - franchise fees

as of 8/23/11

Cable Portion of Bill - based on

subscriber cable plan

Current Monthly

franchise fee Estimate

At 4.25%

Monthly franchise fee

Estimate At 5.00%

Monthly increase due to franchise

fees

Estimated annual increase per

subscriber due to franchise fees

$19.75 $0.94 $1.09 $0.15 $1.78

$63.99 $3.04 $3.52 $0.48 $5.76

$81.99 $3.89 $4.51 $0.61 $7.38

Typical customer bills - impact of change - franchise fees & PEG fees

Cable Portion of Bill - based on

subscriber cable plan

Current Monthly

franchise fee Estimate

At 4.25%

Franchise fees at 5% plus PEG fee at .50/month

Monthly increase due to franchise

fees and PEG fees

Estimated annual increase per

subscriber for franchise & PEG

fees

$19.75 $0.94 $1.59 $0.65 $7.78

$63.99 $3.04 $4.02 $0.98 $11.76

$81.99 $3.89 $5.01 $1.11 $13.38

Comcast cable - Current rates for some plans:

$19.75 - Limited cable

$63.99 - Digital Starter

$81.99 - Digital preferred

City of Bellingham


Financial Impacts to City:

The table below shows the estimated franchise fee revenues that would come in to the City should

the proposed franchise be accepted.

Comcast Cable Franchise Revenue Bellingham Comcast Franchise Revenue - Current Allocation Annual revenue

3.00 % - General Fund About $550,000 per year

1.25% - BTV10 About $230,000 per year

0.75% - Not currently collected, but to be collected upon franchise renewal

About $138,000 per year ($46k per .25%) Unless otherwise specified, this revenue would be placed in the City's General Fund

PEG fees are proposed to be collected monthly per subscriber. The anticipated use of PEG fees

would be to pay for equipment for use at new PEG access channels or for BTV10. Typical PEG

television stations utilize extensive amounts of equipment.

The table below shows the estimated revenue that would come into the City for use in purchase of

PEG equipment should the proposed franchise be accepted.

PEG Fees and Estimated Revenue

Monthly fee per subscriber Estimated PEG fee revenue per month

Estimated PEG fee revenue per year

$.50/subscriber/month $13,250.00 $159,000.00

Based on 26,500 subscribers

IV. Proposed Franchise - Public, Education, and Government Access Television Provisions

PEG stands for “Public, Education, and Government” and refers to the type of local programming

that can be offered on local noncommercial channels. The franchising authority (the City of

Bellingham) has the authority to designated the type of access channel.

Cable subscribers in Bellingham currently are able to view programming on one PEG channel,

BTV10, which is designated as a Government and Education Access station. The ability to provide

City of Bellingham


additional PEG channels and to pay for equipment for those channels to utilize is a key element of

a cable television franchise agreement.

Many Bellingham respondents to the web-based survey indicated they wished to see local

community programming and educational opportunities represented in their cable television

service. The following were responses to questions asking respondents to rate the importance of

having some types of programming provided as part of the cable service:

60% rated community news, events, and announcements as a “high” interest (with 81% selecting community programming as a “high” or “medium” interest)

42% rated government meetings as a “high” interest

41% rated educational programs as a “high” interest

26% rated information about local non-profit organizations of “high” interest

21% rated school sporting events as a “high” interest

The City also received letters of interest and/or proposals to expand PEG programming from the

following organizations, each presenting different suggestions to expand PEG channel offerings in

the community:

Whatcom Community Television and Communications

University of Washington/Western Washington University

Bellingham School District

Coalition for Community Media

The table below provides a comparison between current franchise and proposed franchise about

public, education, and government (PEG) access television provisions.

Provision Current Franchise Proposed new franchise Number of

PEG

Channels

One additional channel (in

addition to BTV10) is allowed

without meeting any special

requirements, however that 2nd

channel was not requested.

Additional channels are

available based on the amount

of original programming

provided on the existing PEG

channels.

All PEG programming is

intended to be joint between

City and County.

Two (2) additional PEG channels allowed for

total of three (3)

1 – BTV10

2 – Additional PEG channels of any type

PEG channels not obligated to be joint between

City and County

PEG channel

locations in

lineup

Not addressed other than

channel 10

BTV will remain on channel 10 until a move is

mandated or is allowed by the City.

Should any future PEG channels go into

operation, those channels shall be located

City of Bellingham


Provision Current Franchise Proposed new franchise consistent with regional channel lineups in

existence at time of renewal

If PEG any channel is relocated, Comcast to

provide $9,000 worth of in-kind advertising to

notify customers of the change.

Transition to

High

Definition

Not addressed in current

franchise

BTV10 may go to HD once Comcast ceases to

offer basic service in analog format, and

following 90 days notice by City to Comcast –

Note that BTV10 is only channel with this

option

Technical

support for

PEG signals

Not addressed in current

franchise

Comcast will provide technical assistance

within in 24 hours following a call from the

City identifying a technical problem with PEG

channel signals. Comcast will provide

technical assistance or diagnostic services and

will promptly correct the problem should it be

within Comcast’s area of responsibility.

V. Proposed Franchise – Customer Service and Other Key Franchise Provisions

The following table describes other provisions of the franchise that might be of interest to policy

makers, key stakeholders, and the public.

Key Provisions of

Interest

Annexation requirements The proposed franchise was updated to increase clarity of

responsibilities in the event the City limits expand due to

annexation.

The City must notify Comcast of an annexation within 10 days

of annexation approval.

Comcast must provide notice to City within 120 days of

annexation indicating that subscriber addresses have been

reviewed and updated to reflect City as franchising authority

Ascertainment and surveys Improving customer service was an interest of the public as

described in the Community Needs report.

In the current franchise, Comcast was required to conduct an

annual customer survey but the City was not able to add specific

City of Bellingham


questions to it.

In the proposed franchise Comcast must ascertain community

views (via a survey) every 3 years.

At least 60 days prior to issuing the survey, Comcast/City shall

meet to discuss survey, and the City shall have the right to add

up to 10 questions to the survey or refine questions.

Cable system and

complimentary services to

schools and municipal

buildings

The current franchise provides some cable services at no costs to

public educational buildings and facilities and government

buildings and facilities that are passed by the cable system.

The new agreement preserves this service, which is now offered

to accredited public and private schools (but excludes home

schools), in Bellingham. The new agreement also provides

services to municipal buildings and institutional facilities.

There has been some confusion in the past regarding installing

new services or relocating services in schools. The proposed

agreement agreement clarifies responsibilities of Comcast and

the school or City in installing or relocating services.

Customer Service and

support

Comcast will continue to be required to maintain a local

customer service and bill payment location.

As was stated earlier in this report, the City was not able to

negotiate additional customer service requirements related to

Comcast’s telephone system or in the presentation of customer

bills, in spite of repeated attempts negotiate for improvements in

these areas.

Customer service standards provide information to subscribers

about many practical elements of their service experience, such

as how product information is distributed, notification

requirements for rate changes, refund policies, etc.

Customer service standards were reorganized for easier

interpretation, and key FCC customer service rules and

regulations are included in the franchise for ease of reference.

Enforcement Procedures Enforcement procedures identify steps to be taken if there are

concerns about compliance with the terms of the franchise.

The enforcement procedures were completely updated and

rewritten, including use of the City’s Hearing Examiner to make

determinations about compliance.

Following notice and response period related to franchise

City of Bellingham


compliance concern, Comcast has 30 days to cure. In event

Comcast fails to respond or if alleged default is not remedied,

the matter is referred to City’s Hearing Examiner. Hearing

Examiner determines compliance/noncompliance.

Line extensions and

service uniformity

Comcast is provided to provide equal and uniform cable service

throughout the City of Bellingham.

Line extension policy describes requirements related to adding

cable services. Interpretation of these policies has been a

challenge for some customers and for schools in the past.

The service and installation requirements were reviewed and

updated to be consistent both with FCC requirements and to

provide increased clarity based on infrastructure and/or density

in the area or site needing service.

City staff reviewed proposed line extension language in

conjunction with review of City maps and Comcast, to affirm

that the language was appropriate in event of City annexations.

VI. Future City Council Actions

Municipal Code:

In conjunction with this project several sections of the Municipal Code were reviewed.

Some code revisions will recommended by Legal staff following Council approval of the cable

franchise to provide consistency between Municipal Code and the franchise. Two specific

revisions are as follows:

- Line Extensions – Requirements associated with extending cable services. Municipal Code

section 6.17.210 will be updated to be consistent with the language in this franchise. Franchise

language is consistent with FCC rules.

- Hearings Examiner Powers and Jurisdiction – Municipal Code section 2.56.050 will be updated

to reflect Hearings Examiner role in the event of an unresolved franchise violation

Other future policy actions the Council could make:

The Council may choose to provide policy direction related to the use of franchise or PEG fee

revenue.

The Council could grant control and use of additional PEG channels to other entities. This effort

would likely follow some discussion of the process for doing so, and inclusion of such effort into

staff work plans.

City of Bellingham


VII. Conclusion

The renewal of the City’s Comcast Cable franchise has been a significant project effort that is now

in its final phases as the Council considers a proposed 10-year cable franchise agreement.

Should the Council approve the proposed cable franchise ordinance, the franchise would be

effective 15 days following Council approval, assuming that the franchise is signed by both City

and Comcast officials.

Thanks and acknowledgment is due to the following City staff members and elected officials who

assisted with this project effort:

Joan Hoisington, City Attorney

Janice Keller, City Communications Manager

Dal Neitzel, BTV10 Program Coordinator

City Council Project Liaisons Stan Snapp and Michael Lilliquist

Chris Behee, GIS Analyst

Kipp Drummond, Accounting Manager

Jim Tinner, Building Official

Comcast Cable Franchise Renewal Final Project Report

Documents

Transcript of Comcast Cable Franchise Renewal Final Project Report